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Liberty's Net Income Plummets, but Long Term Is Great

The media holdings company is run by great managers and set to deliver value for years. This quarter's earnings dip is a nonevent.

Ever-expanding Liberty Media(NASDAQ:FWONA) posted a nearly $1 billion year-over-year revenue gain this quarter, but it still fell short of the Street's desires. On top of that, the company saw net income decline by two-thirds. Does this mean investors should shun the majority owner of Sirius XM Radio? Not at all. Liberty remains a highly compelling business run by some of the best minds in the industry. As the big media landscape continues to shift amid technological disruption, Liberty is likely to remain one of the most aggressive businesses available to investors. With the recent earnings report in mind, let's take a closer look.

Looking backDespite a substantial rise in revenue, Liberty Media took a hit on Tuesday due to a sharp cut in bottom-line earnings. Earning just $76 million in net income, the company was faced with high costs. Still, there is much for investors to celebrate in the company's latest quarter.

Liberty's chief property, Sirius XM, achieved record revenue of $962 million. Adjusted EBITDA, also at a record level, rose to $296 million. Liberty sold back 500 million of its shares to Sirius, earning the company a nice early profit on its massive investment.

Much of Liberty's quarter centered around financial engineering. The company bought back a 5.2% stake from competitor Comcast as part of a larger overall effort to reclaim stock -- now at 51% of outstanding shares. The company also managed a successful debt offering that was twice the initial amount, raising $1 billion at a 2023 maturity date.

As a reminder for investors, the company owns a near 25% stake in Charter Communications, which is reported to be considering a bid for Time Warner Cable as part of Liberty Chairman John Malone's vision of a highly consolidated cable industry. Liberty increased the size of its investment in Live Nation to $990 million, and lightened its position in Barnes & Noble to $231 million.

The drop in net income should not be taken too harshly, as the company's stakes in high-value entities remain a long-term advantage. So what's an investor to do?

Holding patternBefore the year is over, we may see Charter make a bid for Time Warner Cable. While at this point there is little more than speculation, and the bid would have to be rich enough to satisfy a confident TWC management, this would be a big win for Charter, Liberty, and Malone.

Live Nation and its Ticketmaster business are absolute cash cows and great long-term investments for Liberty.

Barnes & Noble is the least appealing component in the company's portfolio, but it looks like management is working toward winding down the position.

Overall, Liberty Media is a great long-term media play, structured as a holding company with top-notch investors at the helm. The company has chosen its positions wisely, taking substantial stakes in industry-leading businesses that will without doubt continue to generate cash and earnings for themselves, Liberty, and investors.

Author

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.